2011–12 Tax Risk and Controversy Survey

Overview

A new era of global risk and uncertainty.

A new era brings new risks and new responses.

Rarely have tax function leaders, tax administrators and tax policy makers been in such agreement: a convergence of trends has created the ripest environment for tax controversy in years. Audits are more frequent and aggressive, and thus more costly to defend or litigate; assessments and penalties have now entered the realm of billions of dollars; and companies face unprecedented scrutiny and reporting of their tax affairs by advocacy groups and the news media, often hurting brand reputation and - in the worst cases - shareholder value, even when such coverage is unwarranted or inaccurate.

The world has changed dramatically in the space of just a few years. Globalisation, moves from west to east and north to south, and demographic shifts have brought opportunities in new markets, more complex supply chains and rapid growth in the importance of intangibles, royalties, service fees, intra-group financing and intellectual property.

At the same time, the economy continues to move through the different phases of a global financial crisis. The effect on tax policy has been startling, overshadowing longer-term tax trends and the convergence of accounting standards.

Companies are doing all they can to capitalise on change. They are expanding market and customer reach and increasing their search for efficiencies, both in effective tax rate and business operations. They are driving dramatic changes in their business models with restructuring, finance transformation, outsourcing and centralisation.

And tax authorities have become significantly more assertive in examining cross-border activities. The volume of tax information exchange agreements has increased by more than 1,000%, and joint and simultaneous tax audits have gone from concept to reality.

Tax administrators and legislators, under pressure to generate more revenue to balance debt-laden budgets and fund infrastructure and social programs, acknowledge that they are more committed than ever to enforcing existing tax law and creating new enforcement mechanisms. They are demanding more disclosure from taxpayers, strengthening or creating economic substance doctrines and imposing criminal sanctions where they believe wilful tax evasion has occurred. A new era has begun.