Business sees surge in tax disputes around the world and inquiries to increase


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Greg Yates
Senior Ratings Manager
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Big global surveys of tax and finance professionals are an excellent barometer of how people are feeling out there in the field at a time of unprecedented change. So it was great to see PwC’s latest polling on the subject of tax disputes around the world.

The professional services firm found an increase in tax inquiries from authorities over the past three to five years, with this trend set to continue. The rising pressure on corporate tax functions makes it even more important for business to embrace responsible tax conduct.

The survey was conducted in April and May 2024, with more than eight hundred C-Suite level personnel (or direct reports) and heads of department responding on behalf of businesses across 37 jurisdictions. It embraced a range of business types, from publicly listed to family owned.

Of course, the data is only as robust as the sample is broad – and these surveys may not always be representative. The organisations that have the resources to undertake surveys such as this tend to be restricted to the big international accountancy firms, and so the questions and analysis can be somewhat leading in places. However, PwC’s research is extensive and reveals some striking trends.

Tax inquiries on the rise

All 825 businesses taking part in the survey had been involved in at least one tax dispute over the past two years, with almost three-quarters (71%) reporting an increase in tax inquiries from authorities over the past three to five years.

Significantly, the same proportion also expect tax inquiries to increase further still over the next three to five years. Given almost half of all inquiries are said to lead to disputes (see below), the pressure on corporate tax functions is set to grow. The days of tax authorities in major economies being asleep at the wheel and turning a blind eye seem to be long gone.

New regulation and technology drives growth in inquiries

When asked for the most significant reason that tax inquiries are expected to increase in future, the most frequent answer given (21% of businesses) was the growing technological sophistication of tax authorities. Data analytics and automation tools are allowing tax authorities to up their game and take on a greater volume of cases.

New tax regulations at international level (16% of businesses) and national level (13%) are said to be other major drivers. So, a combined 29%, and the number one issue predicted to drive inquiry growth in future years – with nations looking to increase their tax take and close down loopholes and avoidance opportunities.

Interaction between international and national laws may prove to a significant factor in the future, with jurisdictions battling each other to retain or increase their taxing rights and share of corporate tax receipts.

Interestingly, some participant businesses (10%) believe tax authorities are actively seeking to raise revenues at the urging of national governments. This is judged to be particularly important during an era of slower economic growth and pressing public finance challenges.

These trends and more are explored in our publication Seven magnificent reasons to pursue Fair Tax Mark accreditation.

Corporate tax affairs most frequent inquiry, and half of inquiries escalate

Businesses participating in the survey were subject to around 2,200 combined tax inquiries, distributed across a range of business taxes (including transaction taxes, international taxes and indirect taxes). The most frequent inquiry notices received by businesses were about their corporate tax affairs (17% of all inquiries), with transfer pricing responsible for a further 10% of all inquiries. As well as connected party transactions, tax deductions, corporate structures, and the treatment of debt and debt interest are mentioned as common areas for dispute.

Significantly, 43% of tax inquiries covered by the survey (more than 900 in number, out of more than 2,000 total) escalated into tax disputes, with many taking more than three years to conclude. Most businesses reported that disputes with domestic tax authorities are generally brought to a close more quickly than those raised by their counterparts in overseas jurisdictions.

OCED GMT to drive inquiries

As Pillar Two laws have continued to enter into force (in support of the OECD’s Global Minimum Tax), survey results indicate many businesses are concerned about added complexities.

Some 30% of businesses in the survey stated that they are worried about Pillar Two and haven’t yet worked out how they will approach it. Some 60% of businesses said they remain concerned despite having done work to prepare.

Large proportions of respondent businesses fear that tax disputes will grow because of the interplay between Pillar Two and double taxation treaties (39%) and Pillar Two’s interaction with existing transfer pricing rules (35%). Some 41% of businesses said that the Global Minimum Tax (GMT) is likely to give rise to tax disputes in Europe.

Despite the recent changes in administration in the United States, we believe the OECD GMT is still very much alive.

What does this mean for responsible tax conduct?

PwC’s research indicates that corporate tax, the focus of the Fair Tax Foundation and our Fair Tax Mark accreditation, is the business tax most frequently subject to inquiry by authorities, supporting our assertion that corporate tax avoidance remains a clear and present problem across the globe.

The anticipated increase in business tax inquiries over the next three to five years will lead to further scrutiny of the tax affairs of business, making it even more sensible for business to embrace responsible tax conduct and get ahead of the game. This is especially true for businesses trading in Europe, which the survey said was proving to have the most “challenging” tax authorities.

Europe is also set to become a hotbed of tax transparency due to the advent of new rules requiring large multinationals to undertake country-by-country reporting of income, profit and tax.

Pursuing and attaining the Fair Tax Mark is a simple, effective way to demonstrate responsible tax conduct to a business’s stakeholders. Fair Tax Mark assessments provide a safe, supportive space for discussion about how to improve tax conduct and transparency.

The accreditation process is straightforward, and workload for applicant businesses in the initial phase is minimal. Fair Tax Mark accreditation has now been secured by 270 businesses, which together employ more than 400,000 and contribute £5.3bn/€6.1bn/$5.8bn annually in corporate income tax worldwide. Our progressive community has grown to embrace businesses headquartered in the UK, Denmark, Germany, Finland, Italy, Spain, Sweden and the Netherlands.

Don’t hesitate to get in touch with any questions or apply to get the Fair Tax Mark.

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