Large corporations are now worried that any public exposure of their tax planning strategies and directors’ pay could prove to be detrimental to their company reputation.

While a company pursues what it sees as perfectly legitimate tax mitigation, others may see and/or portray it as unethical (if legal) tax avoidance or even as tax evasion.

The second global survey of multinational CFOs conducted by Taxand, the world’s largest global organisation of tax advisors to multinational businesses, has shown that multinational companies in Europe are increasingly concerned that their company’s reputation could be affected by tax planning exposure; 87% believe it could be detrimental, a 19% increase on last year’s survey. The threat of negative publicity surrounding tax payments, added to the growing criticism of directors’ remuneration packages and multinationals’ compensation tax means this issue is higher on companies agendas than ever before.

The survey also produced the following key findings relating to the key tax trends and themes in Europe:

HIGHLIGHTS

Increasing scrutiny slowing multinational growth in Europe:

Almost half (44%) of multinationals in Europe believe their expansion plans have been curbed by overzealous tax authorities

83% have seen a continued increase in the number of tax audits undertaken by tax authorities

88% agree that rising tax transparency and reporting measures have further increased the cost of compliance

The battle for multinational investment in Europe:

International tax, which includes all cross border activity and international tax incentives, is the largest growing concern for multinationals (up 5% year on year), amidst substantial inter-country competition for inward investment.

Harmonisation still desirable in Europe

67% of multinationals in Europe think global tax harmonisation is desirable, with 71% believing it’s achievable in the next 5-10 years.

European multinationals say tax is not the answer to economic woes:

An overwhelming 70% of European respondents do not believe that economic turmoil can be resolved through tax policy.

61% have concerns over governments’ ability to assist multinational companies amidst recession.

Tax dispute resolution remains the biggest issue for multinationals in Europe:

14% of multinationals pointed to tax dispute resolution as their most challenging tax issue, though this was down from 18% in 2011.

Increased dialogue between authorities and multinationals:

Multinationals see a marked improvement in their relationship with tax authorities over the last year, jumping from 62% in 2011 to 71% in 2012.  However, multinationals don‘t believe their tax authority has been more transparent and co-operative, with 71% stating this in Europe.

Company tax return

Tax Form

Frédéric Donnedieu de Vabres, Chairman of Taxand, commented:

“Our second survey has produced another interesting set of results, perhaps most notably the concern shown around the potential reputational impact that tax planning exposure brings to multinationals in Europe. There have been many examples in Europe of corporates being named and shamed for their planning approaches, which could explain the marked increase.

“There remains a significant amount of confusion around tax planning; the public and media don’t always view legitimate tax structures that way. The importance of demonstrating substance has risen to the fore and companies must also be aware of retrospective legislation. Companies need to be seen as good corporate citizens, or potentially face reputational damage.”

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