Global poll of business tax leaders reveals expectations of stricter tax enforcement in the next three years
As the pandemic continues to take a toll around the world and governments see increasing budgetary pressure as they stimulate their economies, half of business tax leaders are expecting fiscal fallout in the form of greater tax enforcement in the coming years, according to a new survey from EY.
In the 2021 EY Tax Risk and Controversy Survey, which covered the views of 1,265 tax and finance leaders across 60 jurisdictions and 20 industry sectors in Q4 2020, 53% of respondents said they’re anticipating greater tax enforcement in the next three years.
Consistent with previous waves of the survey, transfer pricing emerged as the biggest risk, though it’s been amplified by the ongoing impact of the pandemic. Respondents cited the continuum of risks in this area as a growing concern in 2021 and beyond, particularly due to atypical volatility in profits amid the pandemic as well as the challenge of formulating transfer pricing benchmarks that tax authorities will accept.
Nearly half of respondents (45%) underscored risks of tax, permanent establishment, and immigration issues relation to stranded business and expatriate workers in the face of travel bans and fluctuating immigration policies. The potential for new tax audits relating to COVID-19 pandemic stimulus or support was a concern for 28% of those polled.
In the next three years, business tax leaders also underscored concerns as they expect increased costs from rising direct taxes (51%) and indirect taxes (44%). However, the waves of change have been surging even before the pandemic, as three quarters of respondents (75%) pointed to local tax reforms enacted over the last three years that heightened overall tax risk.
Tax authority digitalization was also flagged by three quarters (74%) as a source of growing tax risk for their tax departments. Scrutiny of companies is expected to accelerate as advancements in data analytics, machine learning and artificial intelligence (AI), and cross-border information sharing give tax authorities an edge.
To get ahead of tax risks and controversy, 50% of survey respondents said they’re already utilizing a tax control framework (TCF): 40% said they execute a clearly defined, proactive cooperative compliance strategy, while 35% said they utilize a clearly defined Advance Pricing Agreement (APA) strategy.
But even with their current strategies, companies may still be falling behind. Less than half (47%) of respondents said they actively track current tax policy developments on an international scale, just 37% routinely test their own tax filings using data analytics, and 28% regularly perform a program of mock audits.
“The COVID-19 pandemic has greatly amplified the tax risk profile of organizations,” said Kate Barton, EY Global Vice Chair – Tax. “If organizations are to get ahead of tax risk and controversy, they must act now by investing in technology and implementing a global, centrally coordinated approach to tax risk and controversy management.”
