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What keeps finance chiefs awake at night?

21st February 2014

MGI World What keeps finance chiefs awake at night?

All businesses fret about tax, but there are some aspects that worry more than others. Above all, it seems uncertainty about a particular regime is the thing that keeps bosses awake at night.

That is the finding of a survey by Deloitte highlighting the key pain points for tax chiefs at companies around the world. The causes of this uncertainty can range from frequent and sometimes retrospective changes to legislation, to ambiguity and long-running disputes.

Biggest worries

“While filing tax returns and timely tax compliance may be key to success, these are not the issues that are driving the stress levels of tax executives,” says the report. Highest on the list is in fact legislation, and having to deal with new laws.

“The time and effort needed to keep up with rapidly changing legislation and the concern at getting caught out by changes that have recently occurred keeps tax executives awake at night,” the authors of the study explain.

Three-quarters of respondents have been audited in the last three years, with corporate income tax and indirect taxes receiving the most attention.

Businesses are also having to contend with far greater scrutiny of tax affairs. With the global anti-evasion drive, led by the G20, there is certainly big pressure on bosses to ensure their tax affairs are in order. Corporate reputation matters a great deal and accounting needs to be spot on.

However, there is a clear divide evident. Four-fifths of UK respondents said tax was more in the spotlight. Conversely, just 14 per cent of company leaders in the Czech Republic said the same thing. Indeed the report authors note a very clear distinction between East and West Europe. For example, Luxembourg and Switzerland posted high numbers agreeing with the majority of UK firms, versus only a small percentage in Hungary and Turkey.

Andrew Hodge, head of tax at Deloitte in the UK, says company leaders favour a stable system of tax legislation above all else. He added: “They do not like uncertainty and they cite frequent legislative change as the thing that they would reduce in order to make their own countries more competitive.”

UK and Netherlands top

The report covered a wide range of countries, and it seems the UK and the Netherlands were the countries where bosses are least concerned by tax. The reason is simply that there is a high degree of certainty over legislation in these two countries

The Netherlands has an “easy and professional” tax regime. “It is predictable, easy to contact the tax authorities and to receive a ruling within a few weeks,” said the report. In the UK, the authorities are seen as “helpful” and “pragmatic”, while the country is seen as operating international best practice.

Mr Hodge added: “Both the UK and Netherlands have worked hard to become more attractive to multinational companies, and this seems to be working. This appears to be as much about predictability and stability as it does about underlying rates of tax.”

Russia was the least certain and most difficult country of the seven major European economies. Uncertainty and complexity of the rules were high on the list of problems, though firms also mentioned the fact that rules were often “opaque and arbitrary”.

As a recent OECD report suggested, this is not a problem relating solely to tax.  Business growth in Russia is being checked by “poor governance and rule of law issues”, according to that study.

Italy was also cited by respondents to the Deloitte report as being challenging. Frequent changes to tax law was a big concern, as is different interpretations of the rules.

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