Tax complexity rising for global companies, survey finds

Dive Brief:

The level of complexity in taxation for multinational companies rose in 58 of 110 countries from 2018 through last year, according to a global survey of tax experts funded by the German Research Foundation.
Transfer pricing — or the rules for taxing enterprises under common ownership — will probably grow especially complicated in coming years because of documentation requirements and the ambiguity of regulations, according to the survey of experts conducted by researchers at Paderborn University and LMU Munich.
“Tax-related transfer prices will probably be characterized by enormous complexity in the future,” Caren Sureth-Sloane, a professor of business administration and a specialist in business taxation at Paderborn University, said in a statement.

Dive Insight:

The Biden administration this month won an endorsement from 130 countries for a minimum global corporate tax of 15%. The initiative, led by Treasury Secretary Janet Yellen, aims to end “international tax competition,” curtail billions of dollars in U.S. tax avoidance and boost revenues for the administration’s ambitious federal programs.

The pledge by members of the Group of 20 nations and dozens of other countries followed negotiations led by the Organization for Economic Cooperation and Development (OECD). China and India had previously withheld support for the proposal.

The agreement will prompt the reallocation of $100 billion in profits and annually generate $150 billion in added tax revenue every year, according to the OECD.

The global taxation changes will probably not reduce complications in tax compliance, according to the Tax Foundation.

“The OECD’s ongoing efforts to reform the international tax system will likely further add complexity to the international tax environment,” the Tax Foundation said. “Considering the already growing levels of tax complexity in recent years, it is even more important that policy makers prioritize simplicity when designing and implementing these new rules.”

The Tax Complexity Index compiled by the two German universities measures the complications of a country’s tax framework (tax administration and legislation) and the difficulty in understanding and complying with its tax codes. The index gauges complexity from the point of view of a multinational corporation.

Among 15 tax regulations included in the tax code complexity measurement, transfer pricing is deemed the most complicated regulation and anti-avoidance rules and controlled foreign corporation rules rank number two and three, respectively.

Regarding tax framework complexity, the drafting of low quality tax legislation — including complicated language and flawed translations — is considered the biggest obstacle in 85 of the 110 surveyed countries. Survey respondents also flagged the uncertain amount of time between filing a tax appeal and achieving a resolution.