- 72% of multinationals are concerned about brand damage over intangible asset treatment.
- 63% of global businesses anticipate much greater scrutiny on intangibles from tax authorities on the back of new OECD guidelines.
Recent changes to the OECD guidelines chapter 6 on intangibles and the international political focus on the tax paid by global companies mean 2013 is shaping up to be a year of focus on the intangible assets of multinationals. Global research undertaken by Taxand, the world’s largest global organisation of tax advisors to multinational businesses, reveals that 63% of respondents are anticipating an increased focus by tax authorities on intangible assets such as patents, trademarks and copyrights.
Furthermore, as tax authorities around the world focus on intangibles as one of the few remaining areas to explore to generate revenue, a surprising 70% of multinationals don’t have a clear view of the intangibles in their business, highlighting the ambiguity surrounding these assets and the way in which they are treated from a tax perspective.
What is clear is that 72% of the multinational respondents are concerned that any tax planning around intangibles will have implications regarding their brand’s global reputation.
The G20 recently declared that they would work together to prevent multinationals from shifting their profits to less taxed jurisdictions. However, in an over-competitive environment, tax planning to comply with tax laws around the world is not just an option for multinationals. It is an obligation towards their shareholders and their employees, it is a necessity to remain competitive and for many of these companies tax planning is simply the means to avoid a double taxation scenario where multinationals face the levying of tax by two or more jurisdictions on the same declared income.
However, these criticisms of tax planning by politicians are often over simplistic assessing the local picture only and failing to take into account the spread of tax paid across a number of jurisdictions. Multinational companies have to deal with multiple tax systems across their global operations – it is not incumbent on them to make moral decisions over where they should be paying more tax, and which countries should benefit.
Antoine Glaize, Taxand Global TP & Business Restructuring Leader, commented:
“Tax authorities are running out of ways to increase tax revenues but intangibles remain one of the few areas left to explore. Many multinationals are facing the perfect storm of rising public scrutiny, inevitable tax audits and a heavier compliance burden in the intangibles arena.
“This is coupled with the problems associated with increasingly fierce competition for inward investment between countries across the globe. Technology companies in particular have been targets for public criticism, having been attracted to tax regimes where their large numbers of intangible assets are taxed in a much more accommodating manner. In a complex international tax environment tax planning may only involve the simple avoidance of double taxation. Multinationals have an obligation towards shareholders, employees and other stakeholders to ensure their bottom line isn’t impacted as a result of conflicting tax arrangements when operating across borders.
“There remains a necessity for governments and authorities to strike the right balance by understanding the role of multinationals and their need to manage intangible portfolios across a number of jurisdictions.”
* 33% of multinationals have been subject to a tax audit related to intangibles
* 40% of those audited have then suffered a pricing reassessment as a result
* 76% of multinationals recognise an increased compliance burden and anticipate taking pre-emptive measures such as increased documentation etc.
Antoine Glaize added:
“Intangibles have been highlighted as a particular area of concern in the 2013 OECD guidance addressing Base Erosion and Profit Shifting (BEPS). This will inevitably impact legislation going forward and multinationals with valuable intangibles cannot assume that their transfer pricing policies and supporting analysis and documentation will comply with the new principles.
“The rewrite of the OECD Transfer Pricing Guidelines on intangibles will once again cause a compliance burden for multinationals. With these changes due to take effect in 2014, 2013 is the window of opportunity to ensure their house is in order.”