EY Tax survey stresses excessive scrutiny and the significance of BEPS

Pascal Saint-Amans of the OECD addresses potential outcome of BEPS action plans

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Oct 09, 2014, 02:00 ET

NEW YORK, Oct. 9, 2014 /PRNewswire/ -- EY announced today the results of a new tax survey at its 33^rd Annual International Tax Conference, "Connecting the dots." The survey uncovered the issues of navigating multiple challenges, led by increased scrutiny and the effects of the Organisation for Economic Co-operation and Development's (OECD) base erosion and profit shifting (BEPS) project.

"Tax directors need to be informed about all changes in the current tax environment and prepare themselves to manage any new challenges," said Kate Barton, EY Americas Vice Chair of Tax Services. "Whether you're talking about tax law changes, BEPS or the growing incidence of tax controversy, it is important to know all the issues, know your options and design the best path for your company."

THE BEPS IMPACT

Tax directors are increasingly convinced that the BEPS project will generate significant changes over the next five years, with 79% projecting an impact compared to 65% just a year ago. However, most are still unprepared to address it. Only 28% expect to make any changes due to BEPS in the next two years. To that point, while 25% of respondents expect the biggest impact from increased information reporting, 53% revealed they have not even begun analyzing what country-by-country reporting would mean for their company. This apparent procrastination may reflect a preference to delay decisions until final recommendations are made by the OECD and countries pass implementing legislation.

Keynote speaker Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration at the OECD, shared his perspective on the status and direction of the BEPS project, focusing on the long- and short-term prospects. Saint-Amans reiterated his premise that the BEPS action plan will provide a level playing field for countries around the world. "Short-term, the BEPS actions will require change," he said. "Long-term, they should reduce controversy that is expensive to countries and companies."

INCREASED AUDIT SCRUTINY

Nearly a third of respondents (30%) are already seeing tax authorities raise audit issues that reflect various issues being addressed by the BEPS project, primarily in Europe (74%), Asia Pacific (33%) and North America (32%). Previously, Asia Pacific had shown less reported activity than North America. Overall, 53% are currently being audited in more countries than ever before. In addition, 65% of respondents judge the enforcement posture and tactics of foreign tax authorities as more aggressive than before.

"These findings are consistent with the results of a recent Tax Risk and Controversy Report in which 79% of US-based companies said they have faced more aggressive tax audits in the last two years," said Jeff Michalak, EY Americas Director for International Tax Services. "The report also found that another 69% see an increase in disclosure and transparency requirements imposed upon companies, and 74% see an increase in cross-border focus by tax authorities. It's clear that, given the increased incidence and aggressiveness of income tax audits, companies must devote more resources than ever before to managing their global tax risk profile and to administering government inquiries and audits. In this environment, 67% say they are more likely to consider using the Advance Pricing Agreement (APA) process to help manage risk and obtain certainty, a 12% increase last year."

TRANSFER PRICING PRACTICES

Among respondents that have faced audit issues reflecting BEPS, 60% ranked transfer pricing overall as the number one focus area currently being raised as an audit issue. When asked about the top challenge in foreign country audits, 39% selected transfer pricing related to tangible goods and services, while 24% chose transfer pricing related to charges for intellectual property.

These challenges are already affecting companies' transfer pricing practices. Among all anticipated changes to their tax profile, transfer pricing documentation was most frequently cited (50%), followed by transfer pricing methodology (38%).

About the survey

The 400+ EY 33^rd Annual International Tax Conference survey respondents represent senior tax executives from large public and private companies across 29 countries, 68% of whom are from companies headquartered in the U.S.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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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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