INCREASING EXECUTIVE FOCUS ON TAX COMPLIANCE AS GOVERNMENTS TAKE AIM AT PERCEIVED ABUSE

Over the past few years we have witnessed increased scrutiny by worldwide tax authorities of corporate tax planning, corporate tax structures, and tax practices that arguably amount to tax evasion  (e.g., Apple in Ireland; Amazon in Luxembourg; Starbucks in the Netherlands; and so on ). Countries are beginning to enact new and uncompromising legislation in order to combat what they perceive to be corporate tax abuse and corporate planning strategies that have a singular tax-related goal.

The United Kingdom, for example, has legislation (taking effect in 2018) that will make it a criminal offense for a company to fail to prevent the facilitation of tax evasion by its staff, regardless if such evasion relates to domestic or foreign taxes. Such legislation will make it a strict liability criminal offense (e.g., there will be no “intent” requirement needed for a conviction) for a company to fail to prevent the facilitation of tax evasion by a company’s employee(s) or a person associated with the company. Such increased scrutiny, and increasingly tangible steps to deter aggressive tax planning by businesses, coupled with shifting political landscapes and politicians’ increasingly publicized concerns about base erosion and profit shifting, are causing corporate executives and board of directors (“Senior Executives”) to spend more time focusing on tax compliance, according to a new report by Allen & Overy LLP (the “Report”).

This Report, released in January of 2017, surveyed 396 senior-level executives from a variety of companies located across Western Europe, the United States, and Australia. Senior-level executives and board members have traditionally limited the vast majority of their tax-related focus and discussions, if discussed at all and not left to others, to the minimization of the company’s effective tax rates. According to the Report, however, Senior Executives are now increasingly discussing, and spending more time on, effective ways to ensure that their companies are both complying with domestic and international tax reporting requirements and preemptively bringing potential tax issues to the attention of applicable authorities.

While it undoubtedly makes fiscal sense for a company to comply with tax laws and avoid even the potential of a major dispute with a country’s tax laws and tax authority, it can also be highly advantageous and profitable for a company to engage in novel or tried-and-true tax planning strategies in order to dramatically lower their effective rate. With increasingly complex, and ever-changing, tax codes and regulations enacted throughout the world, governments and tax authorities would be wise to provide taxpayers and their advisers with comprehensible and dependable guidance in order to increase the likelihood of transparency and not deter companies from expanding operations across the globe.