MNCs' Asia expansion curbed by rising tax scrutiny, says survey

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SummaryIncreasing tax scrutiny by authorities is slowing the pace at which multinationals expand their business in Asia although dialogue between tax payers and regulators are improving, says a survey of over 70 global firms with presence in Asia.

Increasing tax scrutiny by authorities is slowing the pace at which multinationals expand their business in Asia although dialogue between tax payers and regulators are improving, says a survey of over 70 global firms with presence in Asia.

The survey based on interviews of CFOs done by tax consultancy firm Tax and said there is a continued increase in the number of tax audits undertaken by authorities year-on-year. The survey said 76% of the CFOs interviewed confirmed that there is an increase in the number of tax audits last year in Asia, while 83% agreed that there is a rise in tax audits in Europe, a direct reflection of the troubled global economic environment and governments’ need to cut deficits.

Some firms admitted their growth plans in the region have slowed down because of intense tax scrutiny. “Over half (53%) of multinationals in Asia believe their expansion plans have been curbed by overzealous tax authorities,” said Taxand. Cross-border transactions and transfer pricing remain most scrutinised areas.

According to finance ministry data, India detected mispricing of goods and services between different arms of multinationals present in India worth Rs 43,531 crore in financial year 2011-12. The government keeps a penetrating gaze over how companies in India declare the value of goods and services in transactions with their global parents (transfer pricing) in order to prevent illegal transfer of profits, which reduces the taxable income of the entity here.

The survey said that despite the increased understanding of businesses, the rising scrutiny of financial transactions from a transfer pricing standpoint is starting to cause some concern amongst multinationals in Asia.

Fewer companies, however, considered tax dispute resolution as a challenging issue in 2012 compared to a year ago. Multinationals also saw a marked improvement in their relationship with tax authorities in Asia over the last year, with 94% of companies noting an improvement this year compared to 71% companies in 2011.

Many companies desire a harmonisation of tax laws in the region. Mukesh Butani, Head of Taxand Asia, said global firms doing business in Asia desire a harmonisation of tax laws in the region. “Our survey has produced an interesting set of results, perhaps most notably, the desire of multinational companies operating in Asia for the simplification that harmonisation offers,” he said.

(ends)

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