Increasing tax scrutiny by authorities is slowing the pace at which multinationals (MNCs) 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 Taxand showed there is a continued increase in the number of tax audits undertaken by authorities year-on-year. The survey said that 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 that their growth plans in the region have slowed down because of intense tax scrutiny. ?Over half (53%) of the MNCs 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 incorrect pricing of goods and services between different arms of MNCs present in India worth R43,531 crore in fiscal 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 increased understanding of businesses, rising scrutiny of financial transactions from a transfer pricing standpoint is starting to cause some concern amongst MNCs in Asia.
Fewer companies, however, considered tax dispute resolution as a challenging issue in 2012 compared with a year ago. MNCs 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 with 71% companies in 2011.
?Our survey has produced an interesting set of results, perhaps most notably, the desire of MNCs operating in Asia for the simplification that harmonisation offers,? Mukesh Butani, head of Taxand Asia, said.
