Research undertaken by Taxand, the world’s largest global organisation of tax advisors to multinational businesses, reveals that governments across the globe face a real dichotomy. Over the past year they’ve faced the dilemma of balancing the ongoing need to address a difficult economy through increased tax revenues, with a desire to maintain the attractiveness of their countries for multinational investment.

Walter Cutajar, Managing Director of Avanzia Taxand in Malta said “Increasing revenues remains a critical pivot for any government to sustain the welfare of its people and to steer away from meltdowns such as financial bailouts witnessed recently in several European countries. Malta is not immune to the financial woes and turbulent market conditions but the Maltese government faces a less challenging task from that experienced by other EU states, due to the successful track record in job creation and economic growth especially in the financial services sector where we have experienced incredible growth especially when one considers what other economies are going through.  ”. 

The Taxand 2012 Tax Milestone Survey asked advisors from 36 countries to reveal the three most pertinent tax changes introduced in their countries during 2012.

Key global tax trends

1.      Governments seeking revenues

Despite overcoming the worst of the global economic downturn, Taxand’s survey reveals that the majority of important tax changes over the past year have centred around increasing tax bills for multinationals, as governments continue to strive to raise revenues. We have seen developments in Permanent Establishment (Chile, China) and Withholding Tax (Denmark, Germany). Of particular interest has also been the development of anti-abuse legislation – with activity in India, where recommendations to delay the introduction of a General Anti-Abuse Rule (GAAR) are currently under consideration so as not to limit the country’s attractiveness for overseas investment in the short-term. The introduction of similar legislation is also underway in Peru and the UK.

Other measures negatively impacting multinationals from 2012 include:

·        Limitations to interest cost deductibility in both Spain and Sweden, predominantly impacting Private Equity houses making leveraged acquisitions

·        Introductions of a Capital Gains Tax on shares held for less than 12 months in Belgium

·        Reinforced limitations in France on carrying forward losses on company profits.

2.      Country competitiveness

The wider economic situation has also resulted in a struggle for investment, with a number of countries seeking to increase the attractiveness of their tax regimes, to secure the attention of big business. Six countries (Finland, Japan, Korea, Sweden, Switzerland and the UK) identified the reduction in the headline rate of Corporate Income Tax amongst the three most important tax changes in their jurisdiction during 2012.

Other measures stimulating inward investment from 2012 include:

·        Lowering of the tax rate for foreign dividends received in Ireland

·        Tax reliefs for innovative start-up businesses in Italy

·        The introduction, in Romania, of the recovery of tax losses incurred by companies involved in restructuring operations

·        Enhancement of the Productivity and Innovation Credit Scheme in Malaysia

·        New Controlled Foreign Company rules in the UK, are likely to ensure the country is more attractive as a location for holding companies.

3.      Evolution of tax legislation – Transfer Pricing is key

2012 has also seen the evolution of tax legislation across a number of jurisdictions. The development of Transfer Pricing (TP) regulation has been particularly prevalent, with a number of measures introduced to update and modernise tax systems. Chile has, for example, brought its legislation in line with OECD standards, whilst Canada has made changes which will see an increase in the overall tax liability in connection with a TP adjustment.

Denmark has also made its TP regime stricter, with the imposition of minimum fines for non-compliance with the new requirements.

4.      Simplification

Multinationals will be disappointed by the fact that most major changes to tax systems over the past year have done little to simplify country regimes. Greece has arguably seen the most favourable changes, with major steps to rationalise, simplify and modernise fiscal provisions, to limit the obligations of companies as well as accelerating the country’s dispute resolution procedures. In Singapore, there is more certainty on the non-taxation of gains from share disposals

Frédéric Donnedieu de Vabres, Chairman of Taxand, said:

“2012 has been yet another important year for global tax systems with a number of changes bringing mixed fortunes for multinational companies. Whilst we have seen the emergence of numerous positive measures, as countries look to bolster their competitiveness, we have also seen a number of governments continue to penalise businesses in order to plug budget deficits.

“More encouraging are the developments we are seeing, amongst the emerging markets to bring their tax systems up to date – particularly in the field of Transfer Pricing. This will go some way towards the evolution of a more harmonised global tax system.

“The latter half of the year has also seen the debate around multinational tax planning come to a head. Looking forward, 2013 is likely to be a crucial year as this debate continues and countries may enforce further measures to limit tax planning under the weight of public pressure.

“What is clear is that the prospect of continual tax code changes does little to promote the stability needed for multinationals’ growth and the potential for tax authorities to, for example, penalise certain structures retrospectively, is doing little to encourage investment in an ongoing environment of economic uncertainty. A more sustainable solution that encourages international collaboration will be essential in the future.”

Taxand is a global network of leading tax advisors from independent member firms in 50 countries. The group of tax professionals, which includes the Malta-based Avanzia, numbers over 300 tax partners and 2,000 tax advisors who help international clients in managing their tax obligations with high quality, tailored advice that helps relieve the pressures associated with making complex tax decisions.