Tax Plunges into the Era of Hyper-Regulation

Twenty-five thousand...

That’s roughly how many legislative changes have occurred around the world regarding tax in the past 12 months – and that is just in the area of transaction taxes.

As staggering as this number is, think about the fact that corporate income tax; payroll taxes; customs and excise duties; environmental taxes; and other relevant fiscal changes are not included. Clearly, we’ve plunged into an era of hyper-regulation in which the speed and volume of global tax rate and rules changes continue to accelerate and are now starting to outpace companies' ability to remain in compliance.

The implications of these rapid and dramatic changes are significant. Many multinational businesses have reached a point where they are simply unable to efficiently and cost-effectively manage their tax positions around the world using their current tools – in many cases, native ERP functionality.

There are other complicating factors as well, such as:

• The massive volume of case law that has developed over time (and which must be multiplied by the number of jurisdictions in which a company does business);
• The effects of tax authorities' policy positions, which often complicate interpretation of the law and may conflict with businesses' understanding of the situation;
• The looming BEPS initiative;
• The growing voices of social campaigners, the media and even the general public -- demanding that businesses pay their “fair share” of taxes, which creates a somewhat subjective test around what constitutes compliance; and
• Cost management and resource limitations on in-house tax departments that are creating tax talent management challenges.

So what to do? Well, tax authorities need to understand that businesses increasingly rely on automated solutions to help manage their taxes, and that complex legislation is difficult to “systemize.”

In-house tax departments have ample challenges to contend with; it would be helpful if tax authorities developed a more detailed appreciation of how tax technology works, and how taxpayers are using it so that the legislation they craft can be readily consumed by software applications.

A good first step for the tax authorities would be to appreciate that tax harmonization should be promoted as a priority so that multinational corporations can be relieved of the significant burden that tax management represents today. This appreciation could serve as a foundation for the development of a workable alternative to hyper-regulation.

Click here to read more about hyper-regulation from Chris Walsh in an article featured in the International Tax Review.