Is the accounting profession ready? Is the UK Treasury ready?
The world of tax is rife with uncertainty like never before.
Led by tax reform in the US, large global businesses around the world are looking closely at both their supply chains and their organisational and legal structures, causing foreign governments to assess these businesses to prevent base erosion and profit shifting (BEPS).
Tax controversy is on the increase, and settling these disputes is rarely straight forward. Even before Country-by-Country Reporting (CbCR) disputes with tax authorities were on the rise, but in the last 18 months or so we have seen a crescendo of activity.
What does this look like?
- Significantly increased Exchange of Information requests (“EOIs”) between tax authorities. Arguably the biggest rise within HMRC, in headcount terms, is in the Competent Authority team.
- Tax authorities not playing by the rules – EOIs before they have exhausted local information opportunities, sometimes EOIs emanating above the local exam team without their knowledge.
- An HMRC policy not to divulge EOIs to the target taxpayer unless they have been asked for information they do not have on file. Not a recipe for trust!
- MNCs having little idea what information
inbeing exchanged – indeed whether it is accurate – but having to deal with the consequences locally.
This is a headache for HMRC in terms of the effort needed to comply with Treaty obligations and also a headache in having increased MAP disputes in the coming years. Indeed, where an MNC has access to MAP it might be beneficial to just let the tax authorities fight it out and provide accordingly!
It is also a headache (and an opportunity) for global service providers to gear up and invest to support MNCs in this area.
We are moving into interesting times.
Within the accounting profession (the Big 4 especially), probably one of the most under invested in areas in terms of service capability globally is tax authority controversy management- i.e. tax audits and litigation.
This is a specialisation in the same way as transfer pricing, but I am not convinced from what we see in the hiring industry that the profession is geared up to support MNCs, given the proliferation of disputes. Relative to their overall size, the major international law firms are tax controversy heavy in capability. There is a further strategic opportunity for law firms to invest in this area and take market share.
In my opinion I do not see the level of investment in either the accounting or law professions progressing at a rate sufficient to meet the demand, and I fear MNCs and the UK economy will pay the price.