Tax Decisions Under Greater Scrutiny, Accounting Jobs Still Hot
A growing number of corporate executives view VAT and goods and services taxes as the top tax risk for global finance directors. That’s according to new research conducted by Tax management software provider Sabrix. That’s not surprising since indirect taxes ? such as value added taxes, sales taxes, custom duties and excise ? can represent up to a third of a company’s annual turnover, and raise significant risks for all businesses, according to KPMG. Moreover, as companies expand into new markets they invariably encounter cross-jurisdictional issues involving indirect taxes, increasing and complicating their tax risks. KPMG adds that poor indirect tax management can squeeze cash flow, allow the over or underpayment of tax and attract stiff penalties for non-compliance. In short, indirect taxes have major implications for companies, their tax strategies and their accounting systems.
The world of tax is changing and indirect taxes are at the heart of this change, according to KPMG. The trend may be one reason why demand for global tax professionals is strong. Executive search firm, A.E. Feldman, says that international tax jobs remain hot right now. Firms are competing for experienced candidates who can navigate the intricacies of statutory reporting and tax compliance, forge cultural and political alliances, and create key operational strategies while mitigating risk. A.E. Feldman’s President, Mitch Feldman, says professionals who are able to master the global aspects of business are in high demand.
VAT Compliance Challenging Amid Recession
The financial crisis will make it more difficult for businesses to achieve sales and use tax and value-added tax compliance, according to a new survey of 150 corporate executives conducted by Tax management software provider Sabrix, reports WebCPA. Moreover, Sabrix said that a whopping 88% of respondents believe that state and local revenue shortfalls will result in an increased number of audits. Another 68% say the current economy will make sales and use tax and VAT a more strategic focus for their company. In fact, 73% of those polled by Sabrix view VAT and goods and services taxes as the top tax risk for global finance directors due to the integration of the global economy.
VAT is on the Rise
The global taxation environment is changing rapidly and tax decisions are under scrutiny like never before, according to KPMG. A key feature of this change is that indirect taxation is now playing an increasingly important part in the global tax agenda facing businesses today. KPMG predicts this trend has no sign of slowing down and warns finance and tax directors to implement robust, forward-looking tax strategies.
In a recent survey of more than 500 finance and tax directors from leading global organizations across 22 countries in Europe, the Americas, Asia Pacific and Africa, KPMG International compiled the following conclusions:
- VAT is increasing in importance globally
- Finance and Tax Directors have a very high level of concern about the management of global VAT risks within their organizations
- Significant opportunities to improve bottom line are being missed
KPMG finds that as global competition for investment puts pressure on national governments to reduce headline corporate income tax rates, they must find alternative sources of tax revenue. As a result, VAT/GST has become a particularly attractive alternative for governments since it’s a very efficient means of collecting revenue without damaging the attractiveness of the jurisdiction as an investment location.
The integration of the global economy is also encouraging the spread of VAT/GST, reports KPMG. One example of this is that VAT/GST is being used to replace revenue lost as a result of tariff cuts required under World Trade Organization (WTO) agreements. Another reason KPMG argues that governments are turning to VAT/GST is that it is a “real time” tax. The firm states that “unlike tax on corporate profits, which can take between one, two or more years from the making of a profit to the payment of the tax, VAT/GST is effectively collected as transactions occur. Shifting to increased reliance on VAT/GST is therefore attractive to governments looking to accelerate receipts of tax revenues.”
Looking ahead, KPMG sees a rise in indirect taxation which will manifest itself in three ways over the coming years:
- More jurisdictions throughout the world will introduce VAT/GST regimes – the current total is 135 and rising.
- Unlike corporate rates, VAT/GST rates are likely to remain stable and, in some cases, may increase over time.
- There will be an increased focus on protecting and broadening the taxable base on which VAT applies. This will be apparent in areas such as measures to combat VAT fraud. Tax authorities will also be constantly amending their VAT rules in order to bring new forms of business transactions within the scope of VAT.
Investing in Talent
VAT is a billion dollar tax for many organizations. There is no disguising the vast amount of money tied up in VAT/GST. Thus it may come as no surprise that investment in talent and technology are also key priorities for effective VAT management, according to the KPMG study. More than half, 66%, of global businesses believe that their organizations need to invest in VAT awareness and 42% believe that investment should be made in improved VAT systems and technology.
“The results deliver a very strong message that if businesses want to adequately deal with the challenges which VAT is expected to present over the next five years, they will need to seriously engage and invest in areas such as employee VAT awareness training, VAT systems and technology, additional internal resources and relationship building with tax authorities and regulators,” says Niall Campbell, KPMG’s Global Head of Indirect. “Finance directors who now engage and invest in managing VAT risks and realizing VAT opportunities can deliver real shareholder value,” he adds.
Are you working in International Tax? If you want to grow your career or address your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman. Find out more about accounting jobs today!
