“It’s about converting controversy to control,” says Marc van der Graaf, Associate Partner, Tax Technology & Transformation, at Tax Belastingadviseurs LLP in the Netherlands. This means optimizing the use of people, processes, data and technology to identify, address and manage potential risks and disputes sooner than ever before. “You have to stem the tide of risks that turns into disputes.” “If you’re looking at managing controversy only at the end of the tax lifecycle – with the audit or litigation – it’s too late,” says Rob Thomas, a director in EY’s global tax controversy network.
It also stays closely connected both to key internal stakeholders – such as the C-suite, board, and various business units – and to tax authorities and policy makers.Īnd as there’s now less and less time between completing a transaction and facing the scrutiny of the tax authorities, the onus is on being proactive.
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This reimagined function uses new tools and processes to gain control and visibility over taxes, gathering deep insight into the full spectrum of its tax affairs, with a clearly defined approach to managing controversy. In order to prepare, those organizations have to prioritize building the “ tax controversy department of the future,” a step-by-step methodology reshaping of the tax function according to a well-defined, commonly agreed approach to managing global tax controversy. (via EY.com UK) Meanwhile, new models of multinational business are emerging that weren’t even considered when current tax rules and double tax treaties were first drafted.Īll of this suggests organizations can expect more disputes, of an increasingly broad and complex nature, often cropping up in multiple countries concurrently. So, too, are cross-border tax architectures and national-level tax reforms. Yet only 24% said they have complete visibility of all tax audits, disputes and litigation globally – and the tax controversy landscape is about to become even more complex.Īs authorities become more collaborative, empowered and sophisticated, global supply and value chains are becoming increasingly complicated. In the 2021 EY Tax Risk and Controversy survey, 66% of respondents said tax controversy has increased in importance to their company 4 in the last three years. This increase may cause challenges for many businesses. “Authorities can profile their audits better than in the past, as they now have greater insight into possible errors in a company’s information thanks to transparency policies and technology enablement,” says Coronado. Given the increase in transparency development and increasingly powerful enforcement tools, tax controversy appears to be on the rise – and becoming more targeted too. Meanwhile, real-time data reporting technologies are spreading to revenue authorities around the world.įaced with such a fluid environment, tax functions must ensure they’re prepared, in several key areas. That figure is set to increase to 115 by 2023. In total, 105 jurisdictions were due to exchange information by the end of 2020 (including, for the first time, Nigeria, Oman and Peru). Such transparency is set to increase even further as tax authorities continue to press for vital revenue. “The traditional information asymmetry between taxpayer and tax authority – where the authority always saw the taxpayer as largely opaque – has been turned on its head.” “The impact of these changes has been nothing less than staggering,” says Luis Coronado, EY Global Tax Controversy Leader. Armed with increasingly powerful machine learning and data-sharing tools, tax authorities can now gain increasingly deep and timely access to businesses’ records. Other recent directives, such as Foreign Account Tax Compliance Act (FATCA), and its EU equivalent, Common Reporting Standard (CRS), only add to the scrutiny – requiring financial institutions to provide information about their customers in certain circumstances, to help authorities understand their income and potential tax obligations.Įight years since increasing tax transparency was viewed as a conceptual idea, it is now the norm in every facet of tax, from transfer pricing to VAT.